EU, US strike derivatives deal

The European Union and the United States on Wednesday struck a long-awaited deal on how to regulate the global derivatives market, worth an estimated $550 trillion.

Once fully implemented, the deal will permit U.S. and European central clearing counter-parties to continue doing business in each other’s jurisdictions.

CCPs, or clearing houses, stand between the two sides of a derivatives trade, ensuring its completion even if one side goes bust.

Jonathan Hill, the EU’s financial services chief, said the deal, which was three years in the making, means that “European CCPs will be able to do business in the United States more easily, and that U.S. CCPs can continue to provide services to EU companies.”

Timothy Massad, chairman of the Commodity Futures Trading Commission — the European Commission’s opposite number in the talks — said in a statement that the deal “will ensure that our global derivatives markets remain robust, while keeping our financial system as stable and resilient as possible. Additionally, it is a significant milestone in harmonizing regulation of our derivatives markets.”

CFTC commissioner J. Christopher Giancarlo said the announcement ends a regulatory stalemate that should have never happened in the first place. The CFTC had acted unilaterally to impose U.S. trading requirements on foreign participants, he said.

“European regulators rightly viewed these requirements as a massive regulatory overreach,” Giancarlo said while applauding the new deal.

Common rules on derivatives were demanded by world leaders after the financial crisis.